The document discusses a cash-credit facility provided by banks to finance working capital needs like purchasing goods and financing debtors. A cash-credit limit is sanctioned based on a company's inventory, stock, and debtors outstanding, up to which they can draw checks over their account balance. Interest is charged monthly on the actual amount utilized. The facility offers flexibility but charges high interest rates. It requires collateral like hypothecating stocks and debtors and is a temporary arrangement for funds.

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Cash Credit (CC)
Facility

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July 2016
Cash – Credit Facility
Cash-Credit is a
facility given by
banks to finance
working capital
(purchase
goods/manufacture
goods and finance
debtors)
It is like a Current
Account with the
addition a limit is
sanctioned up to
which the borrower
may draw cheques
over and above his
own credit balance,
if any
The limit is based on
the inventory/ stock
and debtors
outstanding
Interest is charged
monthly, on the
actual amount
utilized by the
borrower

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Cash-Credit
Fixation
• The Cash-Credit limit is fixed after considering
several features of the borrowing concern such
as production, sales, inventory, past utilization
of such limits, etc. The limits are sanctioned on
a year-to-year basis to be reviewed periodically
Hypothecation
• Stocks and Debtors are hypothecated to the
bank. In case of default by the borrower, the
banks seizes the hypothecated assets

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Cash – Credit Facility
ADVANTAGES
Offers flexibility and convenience
to the borrower
Cost of funds is lesser
Borrower can recycle funds by
depositing all cash accruals in the
bank account and thus minimize
interest charges
DISADVANTAGES
Since limit is fixed once a year, it
could be larger than is required
for most part of the year
Rate of Interest is high
Only borrowers with assets can
apply since it requires collateral
security
It is only a temporary
arrangement for source of funds

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